Posted on Nov 5, 2020 at 8:01 amUpdated Nov 5, 2020 8:39 AM
Ant Financial was supposed to be the biggest IPO of all time. By deciding to stop this operation just 48 hours before, Beijing has certainly knocked out Jack Ma, the most famous entrepreneur in China and founder of Alibaba. But above all, it dealt a blow to the reputation of the Shanghai financial center which – along with Hong Kong – was to welcome this champion of online payment.
The investors, who had subscribed massively to the operation, are amazed. “Such a decision, so brutal, so close to the quotation is unprecedented”, comments an equity broker. “Ant’s listing postponement is a real surprise”, adds Xiadong Bao, manager at Edmond de Rothschild AM.
The party wanted to regain control
It’s hard not to see the will of the Chinese Communist Party to regain control, and to show that the real boss is him. Jack Ma had criticized the Chinese financial system a few days earlier by comparing banks to “Pawn shops”.
“This is a sign that in China the governance and regulation of the financial system have a higher priority than innovation in the private sector. It is also proof that the visible hand of the Chinese regime is stronger than the invisible hand of the financial markets ”, Xiadong Bao comments. Investors are extremely disappointed. They will not receive the expected actions. However, they were hoping for big gains, between 20 and 30% increase from the first day of trading. But will they for all that withdraw from the Chinese markets or no longer invest in future IPOs?
Some believe that this case should remain isolated despite everything, because it is very linked to the consumer credit sector. Ant Group had already experienced calls to order in the past. On several occasions, the Chinese government had indicated that it intended to change the rules in this sector, no doubt to prevent the Chinese from getting into excessive debt, like what had happened in Japan in the 1980s.
Asset managers are not about to leave the Chinese market. On Wall Street, which broke historic records this year, a number of securities are now considered to be well or too well valued. “Regulatory risk exists in China. We know it. But at the same time, there are few stocks that offer as much growth potential as Chinese stocks. This risk is part of the Chinese specificities ”, says Xiadong Bao.
On the other hand, companies that wanted to be listed in Shanghai are likely to be scalded. Ant Group could have gone public anywhere, in New York, in London. He chose a double listing in Shanghai and Hong Kong. Its parent company, Alibaba, had also initially chosen New York, before also being listed in Hong Kong.
This case falls badly. The Shanghai Stock Exchange is much larger than in the past: 40 billion dollars have been raised there so far in 2020. This is more than triple the amounts raised on the same date in 2019. The suspension of the IPO Ant Group could undermine all the efforts that China, in the midst of a trade and technology war with the United States, has made over the past year to attract large technology companies. In July 2019, the equivalent of a Chinese Nasdaq was launched on the Shanghai Stock Exchange with a new platform for technology stocks, the STAR Market, with considerably relaxed IPO rules. In this context, market professionals who anticipate that Chinese companies that are no longer welcome on Wall Street since the massive Luckin Coffee fraud last April, could instead come to Hong Kong, rather than Shanghai.